December 29, 2008 2:36 PM

Lehman Bankruptcy Postmortem: WSJ version

Posted by Ben Hallman

Over the past month, several publications, including The American Lawyer and New York magazine, have published feature stories (here and here) about the Lehman Brothers bankruptcy, which in hindsight  looks increasingly like the signature moment of the current financial crisis.

Today the Wall Street Journal weighs in, with a feature-length story about the fateful events of the weekend of September 13, 2008, which preceded Lehman's last-minute bankruptcy filing and the sale of Merrill Lynch to Bank of America. The Journal's reporters unearthed a few new details that caught our eye:

• We knew that federal officials and top bank executives met repeatedly over the long weekend in an effort to put together a plan to save Lehman. What we hadn’t heard is the first-person detail, provided by Merrill chairman John Thain, about his thoughts as the weekend progressed. As Thain and other bank chiefs poured over Lehman’s books, he had an epiphany, according to the Journal.

“This could be me sitting here next Friday,” he reportedly said. He left the meeting, told other Merrill officers that Lehman was doomed, and walked outside to call Ken Lewis, the Bank of America chief, at his home in Charlotte. In less than 48 hours, after flirtations with Morgan Stanley and Goldman Sachs, BofA bought Merrill for $50 billion. 

• A good story has great quotes, and the best here comes courtesy of Goldman Sachs chief Lloyd Blankfein.

On Sunday morning, after days of meetings, Blankfein drove to yet another one with an aide. According to the Journal, the aide complained about the hectic schedule: “I don’t think I can take another day of this.” To which Blankfein replied: “You’re getting out of a Mercedes to go to the New York Federal Reserve Bank -- you’re not getting out of a Higgins boat on Omaha Beach.” (He was referring to the World War II experience of a former Goldman head). “So keep things in perspective.”

- As first reported in The American Lawyer, Weil, Gotshal & Manges lawyers and Lehman executives working on the bankruptcy plan said they felt intense pressure from government officials to file for Chapter 11 protection that Sunday night, despite protestations that doing so would cause “financial Armageddon,” according to Weil partner Harvey Miller.

Moving hastily would also, Miller said, be a disaster for Lehman, which had taken only the most preliminary steps to prepare for a bankruptcy. Miller, it seems, was right, or nearly so, on both counts. The Lehman failure sparked a chain of events that has led to an emergency $700 billion federal rescue package for banks, and hundreds of billions more in loan guarantees. It hasn’t been Armageddon, but it comes close.

As for Lehman, the Weil lawyers toiled for the next few weeks to save what pieces it could. But according to a separate Journal story, the precipitous filing came at a steep cost: As much as $75 billion of Lehman’s value was destroyed amid the chaos, according to an internal analysis by the company’s restructuring advisers.

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